Mugabe asks South Africa to bail him out

President Robert Mugabe is pleading for a loan worth hundreds of millions of dollars from Zimbabwe's neighbour South Africa to buy food, fuel and electricity in what is being seen as a sign of the deepening crisis afflicting the country.

Far-ranging negotiations are taking place between South Africa and Zimbabwean officials that could lead to Mr Mugabe agreeing to significant economic and political reforms, South African officials said yesterday.

In what could be a turning point in resolving Zimbabwe's crisis, South Africa's president, Thabo Mbeki, is demanding that Mr Mugabe make substantial reforms, including an immediate halt to housing demolitions.

Yesterday the UN secretary-general, Kofi Annan, said he was "increasingly concerned" by the demolitions and that he was preparing a plan for UN action, a spokeswoman said.

"There has been intense interaction between the two governments over the past few days," said Joel Netshitenzhe, a South African government spokesman. "The discussions have focused on the kinds of assistance that could be offered in terms of a programme of economic recovery and a normalisation of the political situation in Zimbabwe." Mr Netshitenzhe said a loan facility "could be under discussion".

South African newspapers have reported that Zimbabwe wants about $1bn (£570m), the amount Zimbabwean economists estimate the government needs to provide adequate supplies of food, fuel and power until the middle of 2006.

But economic sources said South Africa was more likely to be considering a loan of between $300m and $500m. Sources say the Mbeki government is considering a form of subsidies to South African companies that would provide Zimbabwe with maize, petrol and electric power. The news is a substantial shift from the South African government, which until now had supported Mr Mugabe.

Needing even more financial help, Mr Mugabe will look to his few remaining supporters in Asia. On Saturday he is to fly to China as part of his "look east" policy.

Confronted by worsening shortages, Mr Mugabe came cap in hand to the regional super-power, South Africa. High-level meetings between Zimbabwean officials and South Africa's finance minister and central bank were held on Friday and yesterday, according to Pretoria officials.

Imports of maize alone will cost the Zimbabwean government $360m over the next year and leading finance officials in Harare say they do not know where they will find the money. Mr Mugabe is also trying to avoid expulsion from the International Monetary Fund and the World Bank, to which it has not made payments on its debt of more than $300m. The Washington-based institutions are expected to consider Zimbabwe's membership later this month.

Economic reforms that South Africa will require include a significant devaluation of the Zimbabwe currency. Another requirement will be for Mr Mugabe's Zanu-PF party to hold talks with the opposition Movement for Democratic Change over the constitution, conditions for elections and human rights abuses.

"This is an intensification of South Africa's 'constructive engagement' with Zimbabwe, but now we may start to see something constructive," said Chris Maroleng, of the Institute for Security Studies in Pretoria.

Mr Mbeki has avoided putting such pressure on Mr Mugabe in the past, but he was urged to be more forceful towards Zimbabwe at the G8 meeting in Gleneagles, said Mr Maroleng. He said: "Economically Mugabe is vulnerable. And the fallout from the housing demolitions has made it impossible for Mbeki to defend Mugabe."

Harare commentators see South Africa's tougher talk as an important breakthrough. "This is the result of a broad international initiative," said Iden Wetherell, an editor at the Zimbabwe Independent and Standard newspapers. "Tony Blair met Mbeki and Kofi Annan at Gleneagles and stressed that positive results are needed on Zimbabwe. The visit of the UN envoy who fully investigated the housing demolitions is also part of this initiative.

"Something is afoot and this time Mr Mbeki will want to see progress. They are finally accepting that Zimbabwe's economic and political problems are inextricably linked."